Developments in the Nigerian retail space are quite interesting but could have been more if the business environment were less challenging. The retail sector in this country has grown impressively over the past decade and starting from the emergence of modern malls in Abuja and Lagos earlier on, growth is beginning to spread across the country.
This growth is driven by a large rapidly growing population coupled with rising urbanization rates which means that the country remains attractive to retail investors and retailers across the globe. Growth has been so phenomenal that in less than 10 years, precisely between 2006 and now, this sector has seen about 1000 percent increase in the number of retail centres, from just two in 2006 to 22 expected to be operational as from the end of this year.
Total retail space has gone up from a humble beginning of 30,000 square metres in just Lagos and Abuja as at 2006 to an expected 277,000 square metres by the end of 2015. Interestingly, 133,500 square metres, representing about 48 percent of the retail space, will be located in other cities than Lagos and Abuja.
Investors have discovered, through research, demographics and other economic indices, that opportunities also exist in other locations than the traditional cities of Lagos, Abuja and Port Harcourt, hence the present spread of malls to, at least, 10 cities in the federation with the likes of Ibadan, Kano, Enugu, Delta among others having malls now.
Barriers to growth however exist, limiting the number and spread of retail malls in the country and, according to recent report on this sector by Broll Property Services Limited, a considerable amount of groundwork is still required to bring about a mature retail structure in the country.
Broll is a subsidiary of Broll Property Group South Africa (Pty) Limited—Africa´s leading commercial property services group—founded in 1974 with offices throughout South Africa and a growing number of African countries including Nigeria, Ghana, Kenya, Malawi, Rwanda, Mauritius and Namibia.
According to the report, Nigeria has the potential to become a regional or international retail hub, but has to deal with obstacles bothering on high costs of finance, scarcity of suitable development sites and unfavorable legislation which often hamper their success of developers interested in creating larger retail centers.
The report assumes that if these obstacles are overcome in the next five years, it will allow for the growth of domestic brands and the mass entrance of international brands with the ability to cater to all segments, resulting in increased tenant depth.
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In the five years following, a mature retail market where the local retail market adequately satisfies the demand for local consumers across the country will be established and, if Nigeria’s underlying ability to attract retail and leisure consumers outside Nigeria is developed through the improvement and creation of tourist facilities and suppression of insurgency, the country may evolve into a regional retail hub where its retail offering is enough to serve consumers outside national borders.
In the early stages of formal retail, franchisees operating in Nigeria were mainly from Nigeria and South Africa and these were responsible for enabling the entry and operations of overseas brands in the country. South African franchisees leveraged this and there was an influx of South African brands like Shoprite, Game, Nandos and Barcelos among others. Recently, the emergence of Middle Eastern franchisees has led to a wider range of brands available at retail centers.
From a market dominated by Nigerian and South African brands with the odd American, British or European brand like Swatch, there has been an influx of European, American and Middle Eastern brands which have expanded the service offerings with the likes of Pandora (jewelry), Puma (sports apparel) and Hugo Boss (men’s wear) among others.
Like any other sector operating in this environment, the retail sector, in spite of its rapid growth in previous years, is not without its fair share of challenges which are constantly evolving with the global and local environment.
According to Broll, key obstacles facing retail expansion across Nigeria include high financing and construction costs for retail developers, security concerns from typical new entry retailers and the perception of low purchasing power by luxury retailers, adding that infrastructural challenges, especially in the provision of mass transport and road networks for supplier distributions as well as power/water, are also major concerns.
The report notes however, that Nigeria’s growing economy and strong demographic profile mean that there is still a sustained interest from retailers and developers in numerous locations, adding, “for developers, the expansion of brick and mortar retail would generally require suitable development sites and affordable finance and construction costs; on the other hand, a new retailer making an entry needs an ideal location, affordable rentals, accommodating regulations, demographics to support their product range and a reasonable cost of doing business”.
It reasons that in cases where one or two of these factors for any party are unfavorable, it can prevent the entry of certain tenants into the market, noting that these factors apply pressure against the prospective expansion of existing tenants and prohibit the entry of new ones. “A consistently expanding retail market will only be achieved when all these factors can work in synergy”, it said.
Continuing, the report says “these issues hinder what we like to call Tenant Depth which refers to the depth in the range of retailers available in a given market catering to different activities and segments. Simply put, malls in Nigeria are typically occupied by the same tenants. It’s good to see the growth and many retailers across the country, but it is also important that we see the growth in the variety of tenants on offer. In this, there is an inherent opportunity for retailers and investors in the improvement of tenant and retailer spread”.
To bring about the desired growth for this sector, the report believes that in a place like Lagos, new initiatives including the trial of the electronic approval and consent from the Governor have the ability to loosen some of the legislative pressure on developers, hoping that sustained pressure from investors and real estate market participants should lead to the largely bureaucratic process of land and title registration across the country being eased.
“On the other hand, other challenges like security and insurgency will require substantial input from the government. Purchasing power and GDP Per capita should continue to rise in the medium to long term despite the multiple challenges the country is currently facing”, it says.